The levy will apply to added sugar drinks with a total sugar content of 5g or more per 100ml – full details here.
Tax signifies ‘tipping point’ with sugar
Anna Masing, acting head of food and beverage at Innovation research and advisory company Stylus says the tax shows the grocery industry has reached a tipping point with sugar.
“While the sugar tax may have pushed some brands to progress at speed, or make changes more publically, the movement towards healthier alternatives pre-dates the March 2016 budget.
“This isn’t simply a case of brands looking to avoid paying tax, we’re seeing a real sea change with brands of all sizes exploring new product and flavour innovation from low-sugar soft drinks targeting adults, to new lines for vegans. Coca-Cola, for instance, is offering a $1m prize to any individual or company that can find a natural and safe compound to replace sugar.
“So, while the sugar tax might be shining the spotlight on sugar, the trend towards developing healthier alternatives is so much bigger than that and one that has been bubbling away for some time.”
Reformulation costs vs tax costs
Martin Hook, managing director of Ayming UK, a business performance consultancy specialising in R&D, says that over the last two years manufacturers have been trying to assess how best to balance reformulation costs with tax costs.
“Drinks companies have gone back to the drawing board across all their products. They have been steadily making their drinks healthier to combat obesity - sugar free and diet versions have been around for some time. But recently it's been a scramble to find innovative ways to rethink their manufacturing processes and successfully reduce sugar content, without a potentially profit devastating change in taste.
"The fact that some people are currently paying £60 for a bottle of original Lucozade proves just how hard consumers can be to please. It's definitely been a long and thorny ‘trial and error’ period for drinks companies: all drinks manufacturers have been busy researching new innovative ways to replace sugar with alternatives, all of which has incurred a burdensome R&D cost - which companies need to strike the right balance between reducing new tax costs and avoiding a consumer backlash.
"It's encouraging to see so many companies rolling out new products - the core Ribena and Lucozade owned products for example have cut sugar by 50%. Osborne's initiative has evidently spurred investment into creating innovative ways to redevelop sweet drinks.
"Looking ahead, it's likely the research will continue as the developed markets push in a healthier direction, so manufacturers should keep the ball rolling, take a long term view and continue successfully developing more consumer-friendly products."
Expect taxes and regulation to extend to other products
Mark Jones, partner and food and drink industry expert at Gordons law firm, says that food manufacturers should also expect to see more taxes and regulations unless they make big changes.
“Introducing the sugar tax on fizzy drinks is the Government’s latest attempt to tackle the obesity crisis, but whilst it has had some effect on the drinks market by encouraging manufacturers to develop lower sugar products, this levy in isolation is unlikely to have any significant effect on our health.
“Over 50% of Europe’s population is overweight or obese and almost 30% of children aged 2-15 in the UK are overweight or obese today.
“Although the sugar tax is clearly a step in the right direction, there is little evidence to demonstrate it actually tackles the problem of calorie intake/calorie balance.
“If the UK is to really take steps to tackle obesity, we need regulation and taxes on high calorie and high sugar food products too. And with the poor health of our nation costing the public purse so much, I would expect to see that in the coming years unless there are big changes from food manufacturers.”
Significant upheaval for business - but reformulation pays off
International food and drink group Princes produces soft drinks under the Jucee and Princes brands, as well as a range of own brand products for UK retailers.
Ruth Simpson, group marketing director, said: “The soft drinks industry levy is a cornerstone of the Government's Childhood Obesity Strategy and its announcement in 2016 will have caused significant upheaval for many businesses.
“We have been active in reformulation and sugar reduction in soft drinks for several years. Since 2011 we have removed some 45 billion calories from the customer own brand soft drinks we supply and we have taken over 350 million calories out of our brands.
“For some time we have listened to and embraced consumers’ needs for lower or no calorie options. We reformulated and launched our Princes Refreshers juice drinks with No Added Sugar (NAS) in March 2016, in addition our range of Jucee juices and juice drinks do not contain any added sugar.
“Our long held proactive position means that none of the 12 million cases of branded soft drinks we sell will be impacted by the levy.”
Positive step – but will it work?
Dr Daniel Bailey, senior lecturer in health, nutrition and exercise and the University of Bedfordshire, says the levy is a positive step in the attempt to tackle obesity as it raises awareness of sugar levels in products – but adds that a price increase in sugary drinks is not enough to tackle obesity.
“Already we’ve seen a notable industry reaction where a number of manufacturers have reduced the sugar content of their soft drinks; whether that’s to support the drive for healthier beverages or simply to avoid the levy is uncertain. What is trickier to determine is what the response among consumers will be and whether this levy will have any success is reducing how much sugar people consume.
“The increase in tax placed upon soft drinks that still contain added sugar above the taxable threshold will make the products more expensive, but will this actually discourage people from buying them? We could just end up with consumers buying the same amount of soft drinks but paying more for that product.
“The levy is definitely a step in the right direction but on its own will not provide the solution to the obesity crisis. A combination of measures is needed, such as plans to ban the sale of unhealthy drinks in hospitals and campaigns to alter the consumer mind-set towards over-indulging on sugary products. Health officials and policy makers still have their work cut out for them if the UK truly wants to see obesity levels fall.”